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Introduction to Accounting and Business

Learn about the role of ethics and accounting in business, development of accounting principles, accounting equation, business transactions recording, financial statements, and business organization forms.

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Introduction to Accounting and Business

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  1. 0 1 Introduction to Accounting and Business

  2. 0 After studying this chapter, you should be able to: Describe the nature of a business and the role of ethics and accounting in business. Summarize the development of accounting principles and relate them to practice. State the accounting equation and define each element of the equation.

  3. 0 After studying this chapter, you should be able to: Describe and illustrate how business transactions can be recorded in terms of the resulting change in the basic elements of the accounting equation. Describe the financial statements of a proprietorship and explain how they interrelate.

  4. 0 1-1 Objective 1 Describe the nature of a business and the role of ethics and accounting in business.

  5. ServiceBusinessService Plaza Indonesia Realty Tbk. Shopping mall Hotel Sahid Jaya Tbk. Hospitality and lodging Bank MandiriTbk. Financial services Garuda Indonesia Transportation IndosatTbk. Telecommunication 0 1-1 Types of Businesses

  6. Merchandising BusinessProduct Matahari Putra Prima Tbk. Clothes and apparel Hero Supermarket Tbk. Food and groceries Toko Gunung Agung Tbk. Books and stationeries Ace Hardware Indonesia Tbk. Consumer electronics Alfa Retailindo Tbk. Consumer goods 0 1-1 Types of Businesses

  7. Manufacturing BusinessProduct Sepatu Bata Tbk. Shoes Mustika Ratu Tbk. Cosmetics Gudang Garam Tbk. Cigarettes Mayora Indah Tbk. Food and beverages Kalbe Farma Tbk. Pharmaceutical 0 1-1 Types of Businesses

  8. 0 1-1 Common Forms of Business Organizations • Proprietorship • Partnership • Corporation • Cooperatives

  9. 0 1-1 A proprietorship(perusahaan perseorangan)is owned by one individual and— • Most of Business entities in Indonesia is proprietorship • Cost of organizing is low • Is limited to financial resources of the owner. • Is used by small businesses.

  10. 0 1-1 A partnershipis similar to a proprietorship except that it is owned by two or more individuals and— • In Indonesia we know firma and CV as two types of partnership. Firma and CV will be discussed more in chapter 12. • Combines the skills and resources of more than one person.

  11. 0 1-1 A corporationis organized under government statues as a separate legal taxable entity and— Continued

  12. 0 1-1 • Includes ownership divided into shares of stock, sold to shareholders (stockholders). • Is able to obtain large amounts of resources by issuing stock. • Is used by large businesses.

  13. 0 1-1 Cooperatives (Koperasi) • Is owned by a group of people (named as member). Cooperatives mainly are organized by and for member only. For example Employee Cooperatives (Koperasi Karyawan), Milk Farmer Cooperatives (Koperasi Pengrajin Susu), Batik Business Owner Cooperatives (Koperasi Pengusaha Batik), and many more

  14. 0 1-1 A business stakeholderis a person orentity having an interest in the economic performance and well-being of a business.

  15. 0 1-1 Capital market stakeholdersprovide the major financing for the business in order for the business to begin and continue its operations.

  16. 0 1-1 Product or service marketstakeholdersinclude customers who purchase the business’s products or services as well as the vendors who supply inputs to the business.

  17. 0 1-1 Government stakeholdershave an interest in the economic performance of a business. Provincial governments collect taxes from businesses within their jurisdiction.

  18. 0 1-1 Internal stakeholdersinclude individuals employed by the business. Managers have an incentive to maximize the economic value of the business. Employees have an interest because their jobs depend on it.

  19. 0 1-1 The moral principles that guide the conduct of individuals are called ethics.

  20. 0 1-1 The answer to “What went wrong for these companies?” (Exhibit 2) involves three factors. 1. Individual character 2. Firm culture 3. Laws and enforcement

  21. 0 1-1 Accountingcan be defined as aninformation system that provides reports to stakeholders about the economic activities and condition of a business.

  22. 0 1-1 The process by which accounting provides information to business stakeholders is as follows: • Identify stakeholders. • Assess stakeholders’ information needs. • Design the accounting information system to meet stakeholders’ needs. • Record economic data about business activities and events. • Prepare accounting reports for stakeholders.

  23. 0 1-1 23

  24. 0 1-1 Financial accounting is primarily concerned with the recording and reporting of economic data and activities for a business. Managerial accounting uses both financial accounting and estimated data to aid management in running day-to-day operations and in planning future operations.

  25. 0 1-1 Accountants employed by a business firm or a not-for-profit organization are said to be employed in private accounting. Accountants and their staff who provide services on a fee basis are said to be employed in public accounting.

  26. 0 1-2 Objective 2 Summarize the development of accounting principles and relate them to practice.

  27. 0 1-2 The business entity conceptlimits the economic data in the accounting system to data related directly to the activities of the business.

  28. 0 1-2 The cost concept is the basis for entering the exchange price, or cost of an acquisition in the accounting records.

  29. 0 1-2 The objectivity concept requires that the accounting records and reports be based upon objective evidence.

  30. 0 1-2 The unit of measureconceptrequires that economic data be recorded in rupiah.

  31. Example Exercise 1-1 Follow My Example 1-1 Rp137,000,000. Under the cost concept, the land should be recorded at the cost to Bengkel Agung Jaya. 31 0 1-2 On August 25, Bengkel Agung Jaya extended an offer of Rp125,000,000 for land that had been priced for sale at Rp150,000,000. On September 3, Bengkel Agung Jaya accepted the seller’s counteroffer of Rp137,000,000. On October 20, the land was assessed at a value of Rp98,000,000 for property tax purposes. On December 4, Bengkel Agung Jaya was offered Rp160,000,000 for the land by a national retail chain. At what value should the land be recorded in Bengkel Agung Jaya’s records?

  32. 0 1-3 Objective 3 State the accounting equation and define each element of the equation.

  33. 0 1-3 The Accounting Equation Assets = Liabilities + Owner’s Equity The resources owned by a business

  34. 0 1-3 The Accounting Equation Assets = Liabilities + Owner’s Equity The rights of the creditors, which represent debts of the business

  35. 0 1-3 The Accounting Equation Assets = Liabilities + Owner’s Equity The rights of the owners

  36. Example Exercise 1-2 Follow My Example 1-2 0 1-3 Asep Sunarya is the owner and operator of Pasti Sukses, a motivational consulting business. At the end of its accounting period, December 31, 2007, Pasti Sukses has assets of Rp800,000,000 and liabilities of Rp350,000,000. Using the accounting equation, determine the following amounts: The following accounts appear in the adjusted trial balance of Hindsight Consulting. Indicate whether each account would be reported in the (a) current asset; (b) property, plant, and equipment; (c) current liability, (d) long-term liability; or (e) owner’s equity section of the December 31, 2007, balance sheet of Hindsight Consulting. • Owner’s equity, as of December 31, 2007. • b. Owner’s equity, as of December 31, 2008, assuming that assets increased by Rp130,000,000 and liabilities decreased by Rp25,000,000 during 2008. • A = L + OE • Rp800,000,000 = Rp350,000,000 + OE • OE = Rp450,000,000 • A = L + OE • Rp130,000,000 = –Rp25,000,000 + OE OE = Rp155,000,000 • OE on Dec. 31, 2008: • Rp605,000,000 (Rp450,000,000+Rp155,000,000) 36

  37. 0 1-4 Objective 4 Describe and illustrate how business transactions can be recorded in terms of the resulting change in the basic elements of the accounting equation.

  38. 0 1-4 A business transaction is an economic event or condition that directly changes an entity’s financial condition or directly affects its results of operations.

  39. 0 1-4 @solusinet On November 1, 2007, Cinta Cita begins a business that will be known as SolusiNet.

  40. Assets Owner’s Equity = Cash 25,000,000 = a. 0 1-4 Cinta Cita, Capital 25,000,000 Investment by Cinta Cita a. Cinta Cita deposits Rp25,000,000 in a bank account in the name of SolusiNet 40

  41. Bal. 5,000 20,000 25,000 0 1-4 (in Rp000) Assets Owner’s Equity = Cinta Cita, Capital 25,000 Cash + Land 25,000 Bal. = b. –20,000 +20,000 b. SolusiNet exchanged Rp20,000,000 for land. 41

  42. +1,350 +1,350 c. Bal. 5,000 1,350 20,000 1,350 25,000 0 1-4 (in Rp000) Owner’s Liabilities + Equity Assets = Accounts Cinta Cita, Cash + Supplies + Land Payable Capital = Bal. 5,000 20,000 25,000 c. During the month, SolusiNet purchased supplies for Rp1,350,000 and agreed to pay the supplier in the near future (on account). 42

  43. 0 1-4 Beginning with entry (d) the asset section will be shown first, then the liabilities and owner’s equity will be shown in the following slide.

  44. d. +7,500 Bal. 12,500 1,350 20,000 0 1-4 (in Rp000) Assets Cash + Supplies + Land Bal. 5,000 1,350 20,000 d. SolusiNet provided services to customers, earning fees of Rp7,500,000 and received the amount in cash. 44

  45. +7,500 d. 1,350 Bal. 25,000 7,500 0 1-4 (in Rp000) Liabilities + Owner’s Equity Accounts Cinta Cita, Fees Payable Capital + Earned + Bal. 1,350 25,000 d. SolusiNet provided services to customers, earning fees of Rp7,500,000 and received the amount in cash. 45

  46. 0 1-4 Expenses The amounts used in earning revenue are called expenses. Adding expenses to the owner’s equity section results in a space problem. To adjust for these added headings, the word “Bal.” has been omitted from Slides 48, 50, 52, and 54. The bottom row in these four slides provides the balances after each transaction.

  47. Bal. 8,850 1,350 20,000 0 1-4 (in Rp000) Assets Cash + Supplies + Land Bal. 12,500 1,350 20,000 e. –3,650 e. SolusiNet paid the following expenses: wages, Rp2,125,000; rent, Rp800,000; utilities, Rp450,000; and miscellaneous, Rp275,000. 47

  48. e. –2,125 –800 –450 –275 1,350 25,000 7,500 –2,125 –800 –450 –275 0 1-4 (in Rp000) Liabilities +Owner’s Equity Accounts Cinta Cita, Fees Wages Rent Utilities Misc. Payable + Capital + Earned Expense Expense Expense Expense 1,350 25,000 7,500 e. SolusiNet paid the following expenses: wages, Rp2,125,000; rent, Rp800,000; utilities, Rp450,000; and miscellaneous, Rp275,000. 48

  49. Bal. 7,900 1,350 20,000 0 1-4 (in Rp000) Assets Cash + Supplies + Land Bal. 8,850 1,350 20,000 f. –950 f. SolusiNet paid Rp950,000 to creditors during the month. 49

  50. f. –950 400 25,000 7,500 –2,125 –800 –450 –275 0 1-4 (in Rp000) Liabilities +Owner’s Equity Accounts Cinta Cita, Fees Wages Rent Utilities Misc. Payable + Capital + Earned Expense Expense Expense Expense –2,125 –800 –450 –275 1,350 25,000 7,500 f. NetSolutions paid Rp950,000 to creditors during the month. 50

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